Customer Name and Address Sales Organization Discussion Assignment
Order ID:89JHGSJE83839 Style:APA/MLA/Harvard/Chicago Pages:5-10 Instructions:
Customer Name and Address Sales Organization Discussion Assignment
Delivering Plant
1000 Rocky Mountain Bikes 6400 Fiddler’s Green Circle, Denver CO 80111 USA
UW00 SD00
2000 Big Apple Bikes 95 Morton St, New York City, NY 10014 USA
UE00 MI00
3000 Philly Bikes 3999 West Chester Pike, Philadelphia, PA 19073 USA
UE00 MI00
4000 Peachtree Bikes 1001 Summit Boulevard, Atlanta, GA 30319 USA
UE00 MI00
5000 Beantown Bikes 3 Van de Graaff Dr, Boston, MA 18033 USA
UE00 MI00
6000 Windy City Bikes 3010 Highland Parkway, Chicago, IL 60515 USA
UE00 MI00
7000 Furniture City Bikes 401 W Fulton, Grand Rapids, MI 49504 USA
UE00 MI00
8000 Motown Bikes 1550 One Towne Square, Detroit, MI 48076 USA
UE00 MI00
9000 SoCal Bikes 18101 Von Karman Ave, Irvine, CA 92612 USA
UW00 SD00
10000 Silicon Valley Bikes 3410 Hillview Ave, Palo Alto, CA 94034 USA
UW00 SD00
11000 DC Bikes 1300 Pennsylvania Ave, Washington, DC 20004 USA
UE00 MI00
12000 Northwest Bikes 601 108th Ave, Seattle, WA 98004 USA
UW00 SD00
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CHAPTER 4 The Procurement Process 179
179
LEARNING OBJECTIVES
After completing this chapter you will be able to:
- Describe the master data associated with the production process.
- Identify the key steps in the production process and the data, documents, and information associated with them.
- Effectively use SAP® ERP to execute the key steps in the produc- tion process.
- Effectively use SAP ERP to extract meaningful information about the production process.
The production process consists of the various steps and activities involved with the manufacture or assembly of fi nished goods and semifi nished goods. Organizations implement a variety of production or manufac- turing processes, depending on the type of material being produced and the manu facturing strategy used to produce it. Among the most common produc- tion processes are discrete, repetitive, and process manufacturing. Discrete and repetitive manufacturing involve the production of tangible materials such as cars, computers, and bicycles. Each unit produced is a “discrete” unit, meaning it is distinct from other units and it can be counted. Further, the component materials from which the unit is made, such as wheels and bolts in a bike, are identifi able. There is, however, a fundamental distinction between repetitive and discrete manufacturing. In repetitive manufacturing, the same material is produced repeatedly over an extended period of time at a relatively constant rate. In discrete manufacturing, the company produces different materials over time in batches, often alternating between materials on a production line.
In contrast, process manufacturing refers to the production of materials such as paint, chemicals, and beverages that are not manufactured in individual units. Rather, they are produced in bulk, and they are measured in quantities such as gallons and liters. Further, the component materials cannot be identi- fi ed after production because they are mixed together in the fi nal product. Imagine, for example, attempting to identify the raw materials in a gallon of
The Production Process
C H A P T E R 6C H A P T E R
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180 CHAPTER 6 The Production Process
paint. The real-world example below illustrates discrete, repetitive, and process manufacturing as implemented by Apple, Intel, and Valero, respectively.
A good example of a company that uses the make-to- stock strategy is Apple Inc. Apple uses the make- to-stock process for Macs sold in its Apple stores. The company fi rst estimates the consumer demand for its Mac computers. It then calculates its available manu- facturing capacity and the quantities of raw materials it will need to build enough computers to meet consumer demand. Apple’s strategy is to purchase raw materi- als and reserve manufacturing capacity ahead of time
to maximize the cost effi ciencies of buying materials in bulk quantities and doing large production runs. Apple and its contract manufacturers then produce a specifi c quantity of each Mac model and ship them from the factory to the Apple stores and other retail outlets for sale. When customers come into an Apple store, they expect that the computer they want to buy will be there and that they can take it home immedi- ately after purchasing it.
Business Processes in Practice 6.2: Make-to- Stock vs. Make-to-Order
Apple Inc. produces its Macintosh computers using a discrete production process. Apple1 manufactures sev- eral models of Mac laptop and desktop computers on the same production lines in batches of varying quantities. For example, the Mac desktop production line might produce 10,000 units of the iMac 21.5-inch models and then switch the line to produce 15,000 units of the 27-inch model.
In contrast, Intel produces most of its processors in a repetitive production process. Due to the immense costs and technical complexity associated with semicon- ductor production, Intel must construct dedicated pro- duction lines for each of its microchips. Often, switching a production line from one chip to another can cost tens of millions of dollars. Therefore, to maximize cost effi – ciencies, Intel attempts to run continuous production of a specifi c chip for as long as possible. To successfully implement this strategy, Intel must plan its production very carefully.
Finally, a prominent example of process manufac- turing is Valero Energy Corporation, the largest inde- pendent petroleum-refi ning company in North America. Valero produces fuel, chemicals, and other petroleum products in 15 refi neries across North America. The company’s refi neries operate 24/7 in a continuous pro- duction process, converting a total capacity of nearly 3 million barrels of raw petroleum into multiple prod- ucts. Once a refi nery starts full production, it can be many months or years before Valero shuts it down for maintenance.
Source: Apple, Intel, and Valero company reports.
1 Technically, Apple uses contract manufacturers to execute the physical production, but retains a great deal of visibility and control, effectively using the contract manufacturers as “vir- tual” Apple manufacturing facilities.
Business Processes in Practice 6.1: Types of Production Processes
Regardless of the particular production process used, however, compa- nies typically employ two common production strategies, make-to-stock and make-to-order. In make-to-stock production, the production process is trig- gered by a need to increase inventory. Inventory is typically stored in a ware- house until it is used to fulfi ll customer orders. When inventory falls below certain predefi ned levels, the make-to-stock process is initiated, even if there is no pending customer order. In contrast, under the make-to-order strategy, production is triggered by the need to fi ll a specifi c customer order. In other words, production does not begin until a customer orders a product.
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Because Apple uses a make-to-stock strategy, the company must pay extremely close attention to both its retail sales and the amount of fi nished goods inventory it has in stock in order to estimate its demand as accurately as possible. If Apple overestimates the demand for a par- ticular product, the company will be stuck with a large inventory of very expensive fi nished goods that custom- ers don’t want to buy and that will decrease in value while they sit on the shelf. Conversely, if it underesti- mates the demand for a product, customers who want to purchase the computer will be told it is out of stock. They will then have two options: place a back order and wait until the store gets resupplied with inventory, or shop for the product at a different store. Either outcome will make consumers unhappy and could result in lost sales.
In contrast, one of Apple’s major competitors— Dell—employs a make-to-order production strategy. Dell was the fi rst company in the industry to build computers only after they had received a fi rm order and thus knew exactly what product the customer wanted. Because Dell does not have many retail outlets like Apple (although it has recently tested some retail partnerships), the com- pany relies primarily on telephone and Internet sales channels for the majority of their sales. In contrast to Apple customers, then, when Dell customers place an order, they anticipate that they will have to wait a few days for the computer to be produced and delivered.
After the customer places an order, Dell typi- cally assembles the computer from raw materials it has on hand and then ships it directly to the customer. Unlike Apple, then, Dell does not need to be very con- cerned with estimating demand for its fi nished products because it knows exactly what customers want based on customer orders. However, Dell must be extremely careful in purchasing raw materials and managing its production capacity. Because its production runs are very small—sometimes one computer at a time—it must estimate its raw material needs and production scheduling based on an unknown customer demand. If Dell mismanages its production planning process, it is especially susceptible to an oversupply or undersup- ply of raw materials and shortages or idleness in pro- duction capacity. If Dell does not have suffi cient raw materials or production capacity, customers will have to wait much longer for their computers to be shipped.
Conversely, if the company has excessive raw materials or unused production capacity, it loses money.
Although Dell’s customers are accustomed to waiting a few days for their computers to arrive, they probably will be upset if their deliveries are delayed for several weeks due to a shortage of raw materials or a backlog of production orders. Alternatively, Dell’s prof- itability will suffer if its production lines are idle or its warehouses are fi lled with unused raw materials.
Both Apple and Dell have chosen a produc- tion strategy that maximizes their profi tability. Apple believes that by controlling the entire buying experi- ence through their Internet and physical stores, they can attract more customers. This strategic objective drives Apple to place a much higher emphasis on hav- ing products available in the store when a customer comes there to shop, which increases the likelihood that she or he will make a purchase. In addition, Apple realizes signifi cant cost savings through large, planned production runs and close coordination with retail sales data generated by their online and physical stores. For all these reasons, the make-to-stock production proc- ess is probably the best strategy for both Apple and its customers.
In the case of Dell, the make-to-order production process fi ts well with the company’s rapid assembly and standardized products. Dell’s customers are comfortable ordering a computer that they have never seen because they know that Dell uses high-quality, industry-standard components. They also trust Dell to ship them a fi nished computer in just a few days, and they are willing to wait for it to arrive rather than pick it up in a store.
In essence, the preferences and behaviors of each company’s customers determine, to a great extent, the production process for each company. Apple’s cus- tomers want to touch and experience the product in a retail store, whereas Dell’s customers are content to buy something over the phone or the Internet. Each company has optimized its production process to match both its specifi c set of customer requirements and its internal profi tability goals and cost structure.
Source: Adapted from Magal and Word Essentials of Business
Processes and Information Systems. John Wiley & Sons, Inc.
(2009).
The Production Process 181
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182 CHAPTER 6 The Production Process
In Chapter 1, we introduced a simplifi ed production process. We repro- duce this process in Figure 6-1. The process is triggered by a request for pro- duction. The request is authorized, which allows the warehouse to issue the raw materials. Production uses these materials to manufacture the requested goods, which are then moved to storage.
Figure 6-1: A basic production process
In this chapter, we discuss the production process in detail. GBI utilizes a make-to-stock production strategy. Further, it employs a discrete production process to make the different types of bicycles in specifi ed quantities or lots.
We begin our discussion by identifying the master data related to the production process. We then examine the specifi c process steps in detail. We conclude by considering reporting as it relates to production. The major orga- nizational data relevant to production are client, company code, plant, and storage location. We already have discussed all of these data in previous chap- ters. Consequently, we will not cover them in this chapter.
MASTER DATA The master data relevant to production are bills of material, work centers, product routings, material master, and production resource tools. Let’s look at each of these more closely.
BILL OF MATERIALS
A bill of materials (BOM) identifi es the components that are necessary to produce a material. In discreet and repetitive manufacturing, the BOM is a complete list of all the materials, both raw materials and semifi nished goods, that are needed to produce a specifi ed quantity of the material. In process industries, such as chemicals, oil and gas, and beverages, the BOM is often referred to as a formula or recipe, and it includes a list of ingredients needed to create a specifi ed quantity of the product. In this book, we will limit our discus- sion to discrete manufacturing.
A BOM is a hierarchical depiction of the materials needed to produce a fi nished good or semifi nished good (see Figure 6-2). BOMs range from very simple to very complex, depending on the material. For example, a BOM for a ball-point pen consists of only a half dozen or so materials or items.
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Master Data 183
In contrast, the BOM for a Boeing 747 aircraft is exceedingly complex, con- taining more than 6 million materials. In addition, BOMs can be either single level or multi-level. A single-level BOM contains only one level in the hierar- chy, whereas a multi-level BOM has more than one. An aircraft, for example, may have more than 50 levels in its BOM.
BOMs in SAP ERP are defi ned as single level. However, SAP ERP can construct multi-level BOMs by nesting several single-level BOMs. Nesting refers to a hierarchy in which a component in a bill of material has its own bill of material. This structure is illustrated in Figure 6-2, where a multi-level BOM is comprised of three single-level BOMs. The BOM for the fi nished good shows three items: two semifi nished goods and one raw material. In turn, each semifi nished good has a BOM consisting of one or more raw materials. (The raw materials have no BOM and are acquired from an external source.)
Signifi cantly, a BOM is defi ned for a material at the plant level. In other words, different plants may use a different BOM to produce the same mate- rial. This is the case when some of the materials used in producing the material are different. For example, one plant may use a slightly different bolt than another plant in making a fi nished good.
Recall from Chapter 1 that GBI makes deluxe and professional tour- ing bikes. The BOM for the touring bikes (Figure 6-3) displays the materi- als required to assemble the bikes. The professional touring bikes include a professional wheel assembly made from aluminum wheels, while the deluxe touring bikes include a deluxe wheel assembly made from carbon composite wheels. The frames for both the professional and deluxe bikes are made of carbon composite material and come in three colors—red, black, and silver.
GBI also manufactures men’s and women’s off-road bikes using alumi- num frames and aluminum wheels. The frame for the men’s bikes is a differ- ent size than the frame for the women’s bikes. The BOM for off-road bikes is shown in Figure 6-4.
Figure 6-3 and Figure 6-4 represent multi-level BOMs. In both fi gures, the wheel assembly is a semifi nished good that is manufactured using three raw materials. The other component materials are all raw materials. Should
Figure 6-2: Single- and multi-level BOMs
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184 CHAPTER 6 The Production Process
Figure 6-3: Bill of materials for touring bikes
Figure 6-4: Bill of materials for off-road bikes
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Master Data 185
GBI decide to produce the pedal assembly rather than purchase it, then the BOM will be modifi ed to indicate that the pedal assembly is a semifi nished good. In addition, the raw materials needed to make the pedal assembly will be included as a second level in the BOM.
Figure 6-5 identifi es the data contained in a bill of material. The BOM consists of a header section and an items section. The header section includes data that apply to the entire BOM, such as the material number, descrip- tion, plant, usage, validity, status, and base quantity. The material number in the header identifi es the fi nished good or semifi nished good described in the BOM. The BOM is valid from the date specifi ed in the header. A validity date is appropriate when changes are planned for a future date, for example, due to changes in the product design. In such cases the current BOM is valid until the new BOM goes into effect. Because a BOM can be used in several processes, the usage fi eld in the header identifi es the purpose for which the BOM can be used. For example, the BOM in Figure 6-5 displays a usage code of 1, meaning that the BOM is to be used in production. Other purposes for which BOMs are used are engineering, sales and distribution, and plant maintenance.
Going further, regardless of the specifi c usage, a BOM’s status can be active or inactive. An active BOM can be used in the production of a material; an inactive BOM cannot. Finally, the base quantity indicates the quantity of goods that will be produced by the materials specifi ed in the BOM items sec- tion. For instance, the BOM illustrated in Figure 6-5 identifi es the materials needed to make one bike.
The items section of a BOM identifi es all the materials needed to make the fi nished good or semi-fi nished good identifi ed in the header. Figure 6-5 includes some of the items in the BOM for the off-road bike. Examples of data for each item are material number, description, quantity, and item category. Material number and description identify the necessary materials. The quan- tity specifi es how many of these materials are needed. For example, 2 wheel assemblies are needed for each bike. A BOM can contain different types of items, which are distinguished by the item category. The item category iden- tifi es the type of material and infl uences how the material is to be used in the
Figure 6-5: BOM structure
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186 CHAPTER 6 The Production Process
BOM. Common item categories are stock item, nonstock item, variable-size item, text item, document item, class item, and intra material.
- A stock item (L) is a material for which stock or inventory is main- tained; therefore, it must have a material master.
- A nonstock item (N) is one for which inventory is not maintained; therefore, it does not need a material master defi ned.
- If a material is available in different sizes, such as sheet metal or fabric, then the different sizes can be represented by the same material number. In these cases the item category used is variable- size item (R), and data concerning the needed size or dimension must be specifi ed in the BOM.
- A text item (T) is used to include notes and comments within the BOM. Notes may explain how to use the material or identify any unusual assembly requirements.
- A document item (D) is used to include documents such as engineering drawings, assembly instructions, and photographs.
- Class items (K) are used in variant BOMs to identify a class or group of items. Companies use variant BOMs to create multiple versions or variants of the same material rather than prepare a separate BOM for each version. A class item is a placeholder for an actual item that must be specifi ed when the BOM is used. For example, GBI could use a class item to identify the different colors of frames used in the touring bikes. The specifi c color frame would then be selected either during production for a production BOM or during sales for a sales BOM.
- Intra material (M), or phantom items, are a logically grouped set of materials that could collectively be considered as a single material. The material is created temporarily during production, between two subprocesses, and is immediately consumed as production con- tinues. In the case of GBI, a bicycle always will need two wheels — a front wheel and a rear wheel. The two wheels could be logically considered a set, so GBI could use a phantom item to represent this set.
The bill of materials for the Boeing 747 includes more than 6 million parts, half of which are small fasteners or rivets. A 747-400 contains 171 miles (274 km) of wiring and 5 miles (8 km) of tubing. The body of a 747-400 con- sists of 147,000 pounds (66,150 kg) of high-strength alu- minum. To make things even more complex, all those parts are subject to intensive quality and reliability
checks, and they are inspected multiple times before, during, and after they are installed. In addition, Boeing must stock more than 6.5 million spare parts in eight global distribution centers for airlines that need to make repairs to aircraft that are currently in operation.
Source: Boeing Corp.
Business Processes in Practice 6.3: How Large Can a BOM Be?
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Master Data 187
Customer Name and Address Sales Organization Discussion Assignment
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